Wednesday, June 6, 2007

The Tao of Chinese Franchise Disclosure for Foreign Franchisors

Article 4 of the Commercial Franchise Information Disclosure Management Measures (“Disclosure Guidelines”) states that a franchisor must provide a written disclosure document to a prospective franchisee thirty (30) days before executing a franchise contract, unlike the current U.S. FTC Rule (“Rule”), the Chinese disclosure law provides a definite time frame of 30 days disclosure prior to executing the franchise contract. The disclosure must be in the written format covering the requisite components of Article 5 of the Disclosure Guidelines.

The elements required for Chinese disclosure purposes are similar to those franchisors already work with under the Rule. The biggest point of departure is that Section 8 of Article 5 requires Chinese franchisors to make mandatory earnings claims. The Chinese Disclosure Guidelines don’t mention whether a foreign franchisor’s earning results based on certain units in a given geographic area in the U.S. would be sufficient to satisfy the mandatory earnings claims requirement in China.

Local Beijing counsel seem to imply that earnings claims based on either company-owned units or franchised units will satisfy Section 8, as long as, an express disclosure is given that such data bears no market relevance to China and all earnings claims in formation was determined on a reasonable basis.

Hopefully, these new Chinese Disclosure Guidelines will offer a calming balance in what previously had been a chaotic regulatory system.

1 comment:

Sugar said...

Once, you have decided that opening up your own franchise is a wise decision, you will need to decide what type of franchise you wish to open. There are many different profitable franchise opportunities available for expansion. Will certainly visit your site more often now.

Small business loans Philippines